I. BACKGROUND 

1. This refers to the related Important TLQCs in trail blue, italic and double Line (a) 1962 of ----------- about Notice is prerequisite under Section 111 of IT Ordinance  (b) 1631 of 31.8.21 about IT Exemptions of Foreign Remittances from Section 111(4)

2. We also refer to several Other TLQC including (a) 1466 of ----------- about Section 111 cannot be invoked if Dual Nationality, when mainly offshore & Tie-breaker test (b) 1363 of ------------ about Foreign Remittance received via Exchange entities, if PKR received is OK (c) 885 of ------------ about Foreign Remittance received through Exchange Company is OK

II. EXECUTIVE SUMMARY about captioned recent case

1. --HC adjudicated Income Tax References concerning whether foreign funds remitted from ------ without encashment into PKR or issuance of a bank encashment certificate—could qualify as an explained source of investment under Section 111 of the ITO, 2001.

2. --HC held that Section 111(4)’s encashment requirement is only a limited carve-out and does not restrict a taxpayer from explaining foreign-sourced funds through normal banking channels. Since the taxpayer (a non-resident) and her --------------------------, provided a complete and verifiable trail of foreign remittances used to purchase properties in Islamabad, the IHC affirmed that:

• The source and nature of the funds were fully established.
• The Commissioner’s refusal to accept the explanation—merely due to non-encashment into PKR—was legally flawed, arbitrary, and without justification.
• Section 111(1) demands a fair, reasonable evaluation; once the explanation is satisfactory, Section 111(4) becomes irrelevant.
• The CIR also failed to initiate proper proceedings under Section 111 before invoking Section 122, further invalidating the demand.

3. The Tribunal’s decision annulling the demand was therefore upheld in full. The--IHC dismissed all references, confirming that foreign currency remitted through legitimate banking channels into foreign currency accounts cannot be treated as unexplained solely due to lack of encashment, provided the taxpayer establishes a credible financial trail.

III. DETAILS

A. Reference 

1. Further KQU ----- of -----, being an important matter, we would inform you about ----------------------- (Attachment 3392.1) in the ensuing paragraph, with emphasis in bold & Underline, ours for quick reading.

B. Question raised

----------------------

C. Learned Counsel for Appellant / Department Submissions

1 to 3

D. Learned Counsel for Respondent Taxpayers / Submissions

1 to  5

E. IHC Deliberation

1. Status of Property Ownership and Respondent’s Non-Resident Position During Relevant Tax Years

1.1 to 1.2

2. Propriety of Commissioner’s Treatment of Foreign-Remitted Funds and Invocation of Section 111

2.1 to 2.3 

3. CIR’s Objection Regarding Foreign-Remitted Funds and Requirement of En-Cashment Certificate

3.1 to 3.2

4. Scope and Proper Application of Section 111: Requirement of a Fair, Reasoned Assessment by the Commissioner

4.1 to 4.4

5. Nature and Limited Scope of the Carve-Out Under Section 111(4)

5.1 to 5.3 

6. Commissioner’s Refusal to Accept Established Source of Funds as a Colourable and Legally Unsupported Exercise of Authority

6.1 to 6.2

7. Foreign Currency Remittances and Maintenance of Foreign Currency Accounts: No Basis for Deeming Funds Unexplained Under Section 111

7.1 to 7.4 

8. Tribunal’s Findings Upheld: CIR’s Action Under Section 111 Legally Unsustainable and Procedurally Defective

8.1 & 8.2

9. Decision Tribunal’s Order Sustained and References Dismissed

9.1 For the reasons, we answer the question made for our consideration accordingly, the result of which in the instant case is that the impugned order of the Tribunal suffers from no infirmity and no demand could be generated against the respondent in terms of Section 111. The references are accordingly dismissed.

IV. Further Details & Services

Should you require any clarification or explanations in respect of the above or otherwise, or require Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.